Israeli fraud investigators today began questioning the former prime minister Ehud Olmert over suspicions he took bribes as part of a vast, unravelling property scandal in Jerusalem.

Olmert, 63, arrived at the national fraud squad headquarters early this morning where he was told by police officers he was suspected of taking a bribe when he was Jerusalem mayor as part of the Holyland construction project scandal.

Last month Israeli police arrested another former mayor of Jerusalem, Uri Lupoliansky, and six others, including a long-time confidant of Olmert, as part of the Holyland investigation. None have yet been charged in the corruption case which now appears to be one of the biggest in modern Israeli history.

Olmert was forced to resign as prime minister early last year under the weight of mounting corruption allegations. He is already on trial over separate charges of corruption which involve the alleged acceptance of illegal funds from a US ally and double-billing Jewish organisations for trips abroad.

He has denied all the allegations against him and has said he is the victim of character assassination.

"Olmert has stressed more than once that he was never offered a bribe and never accepted a bribe, not directly and not indirectly," his spokesman, Amir Dan, said in a statement.

The Holyland towers, which are still under construction, were built despite widespread local protest. They stand on a prominent hillside in the city and are widely regarded as an eyesore.

According to Israeli press reports, police have found documents that appear to show large bribes were paid over many years to allow the project to go ahead, to allow the developers to benefit from reduced taxes and administrative fees, and to skirt or simply avoid the usual planning restrictions. Dozens of people have been questioned by police and reports say senior officials received pay-offs and, in particular, two of Olmert's associates are suspected of handling bribes.

The Holyland project began in the 1990s and received final construction approval in 1999. Some building continues today. Olmert was mayor of Jerusalem for a decade until 2003, when Lupoliansky was elected as his successor.

In a separate case, Israeli police yesterday recommended that the current foreign minister, Avigdor Lieberman, be charged for trying to disrupt an investigation into his businesses. Police believe an Israeli ambassador tipped off Lieberman in 2008 that police were asking the authorities in Belarus to help in a money laundering investigation against him.

Last August, Israeli police recommended charging Lieberman with several other counts, including bribery, fraud, breach of trust, money laundering and obstruction of justice in a case dating back over nine years. He has not yet been charged.